Entitlement to arbitration under design agreement. Thomas Zimmer Builders LLC v. Kurt E. Roots and Monika Roots. Court of Appeals of Wisconsin (2018), by Hugh Anderson

Summary: In a residential construction dispute between contractor and homeowners, the homeowners (the Rootses) brought a third-party claim against architect Mark Udvari-Solner. Udvari-Solner moved to compel arbitration, based on the arbitration clause in the design agreement between the Rootses and Udvari-Solner Design Co., a corporation.

The trial court denied the motion to compel arbitration, and Udvari-Solner appealed.

Decision: The appellate court reversed the trial court’s decision. The case centered on two issues.

First, the Rootses had argued that the arbitration clause did not apply because Udvari-Solner had falsely represented himself to be an architect in order to induce the Rootses to enter into the design consultant agreement in which the arbitration clause was located. The appellate court held that under state and federal case law even a claim of fraud in the inducement of the contract—a challenge to the validity of the contract itself—must be resolved in an arbitration proceeding.

Second, the Rootses contended that their claim was against Mark Udvari-Solner himself, as an individual; whereas the arbitration clause was in a contract between the Rootses and a corporation, Udvari-Solner Design. On this issue, the appellate court held that an employee or agent of an entity that is a party to an arbitration agreement is protected by that agreement, for acts that occur while working as an employee or agent. The purpose behind this rule of law is that it prevents the signatory of an arbitration agreement from “unilaterally eviscerating” the clause by suing individual non-signatories.

Comment: According to the decision, the homeowners provided a somewhat anemic response to Udvari-Solner’s arguments in favor of arbitration. The appellate court enforced legitimate general rules favoring arbitration, but there is an implication that perhaps the homeowners could have developed arguments justifying exceptions to the general rules.

Many EJCDC contract documents provide the option of including an arbitration clause. When such a clause is included, state and federal case law and statutes support enforcement of arbitration, based not only on contractual principles but also based on public policy strongly favoring arbitration (and thereby reducing the burden on the court system).